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Insurers, banks, and pension funds could all be hurt by climate change

Global nonprofits are urging investors, banks, and insurance companies to shift their practices in light of climate change.

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    A view of an oil refinery off the coast of Singapore, seen March 14, 2008. The Global Risk Institute is asking banks, insurers, and investors to shift their practices in light of climate change.
    Vivek Prakash/Reuters/File
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Is climate change bad for business?

According to the Global Risk Institute (GRI), a nonprofit based in Toronto, it may be. In a new report, GRI warned that global warming could present significant risks for financial institutions.

“Given the financial service industry's heavily integrated role in society, it is particularly susceptible to the risks associated with climate change,” GRI wrote in its report. “It must therefore ensure that proper climate change strategies and risk management procedures are in place in order to remain viable.”

The study, published Tuesday, targeted three at-risk groups: insurers, banks, and pension funds.

Insurance companies, for example, could suffer losses as a result of extreme weather, which could lower the value of physical property and increase risks of personal injury or death. Indirect results of climate change, which are more difficult to predict, could cause an even wider range of concerns for insurance providers.

GRI also urged banks to rebalance their loan portfolios, “scaling back exposure to high-carbon industries and other assets that could suffer in transition.” It warned that “diminished public perception” of fossil fuel companies could equate to long-term financial loses.

“As our economy reduces its dependence on fossil fuels,” the report reads, “new investment opportunities will arise in sectors that produce green products and services. Financing these investments represents a new source of growth for the banking industry.”

But it’s not just banks and insurance companies. Investors may soon be sweating over climate change, too.

Recommended: Five hopeful signs global energy is getting cleaner

In December, the Sustainability Accounting Standards Board (SASB), a nonprofit chaired by Michael Bloomberg, found that 93 percent of public companies in the US face some degree of climate risk. So-called "transition risks" – losses incurred when high-carbon companies are forced to transition away from high carbon emissions – represent a serious concern for investors.

The report also found that, for the most part, companies are not disclosing that risk.

SASB wrote that “because climate risk is systemic and embedded across a portfolio, investors can’t diversify away from it.” Instead, it urged investors to reward industry leaders while pressuring “laggards” to improve their policies. Also in December 2015, the Task Force on Climate-related Financial Disclosures was established to inform market participants of climate-based risk.

Could these new reports represent a shift in thought? As some companies continue to ignore the implications of climate change, others have already changed their tune – and their practices.

Last year, a coalition of European oil companies including BP and Shell argued for a global price on carbon, stating that “climate change is a critical challenge for our world.” Chevron and Exxon Mobile, both American companies, did not join the initiative.

“For us to do more, we need governments across the world to provide us with clear, stable, long-term, ambitious policy frameworks,” the coalition wrote. “This would reduce uncertainty and help stimulate investments in the right low-carbon technologies and the right resources at the right pace.”

 
 
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